Timing of Gallagher's stock trades questioned

The gubernatorial hopeful says it's a coincidence that they came shortly before projects were approved.

February 28, 2006|By Mark Hollis, Tallahassee Bureau

TALLAHASSEE -- The majority of Florida Chief Financial Officer Tom Gallagher's online trades of stock in a company seeking to build a natural-gas pipeline between the Bahamas and Broward County came just before key government announcements on the project, tax records show.

Gallagher made at least 70 separate online orders to buy or sell stock of AES Corp. in 2003, and 60 of those orders came within weeks, in some cases days, of five important federal announcements about the project.

The Republican candidate for governor first began investing in AES in 2002, with his heaviest trading in the company in 2003. He has since sold all of his AES holdings.

Gallagher insists the timing of his AES trades near key government announcements are merely coincidence.

"I don't know about any government actions that took place at all," Gallagher said. "Where I got any information [about AES] was strictly a public thing. . . . I had no idea of [government announcements on the project]. I never asked, never looked and never knew about them."

"It's pretty clear to me," Gallagher said, "that this is a coordinated political attack."

It is unclear from the tax records whether Gallagher profited from his online trades in AES stock, but a review of his trading activity indicates that he lost money on the stock, especially in 2003.

AES is a multinational energy corporation based in Virginia. For more than five years, AES has sought approval to build a natural-gas pipeline from the Bahamas to Dania Beach, near Port Everglades.

The Bahamian government has yet to approve the "Ocean Express" project, though U.S. agencies have generally given swift approvals.

On April 13, 2004, Gallagher joined Gov. Jeb Bush and members of the Florida Cabinet in voting in support of an easement for the pipeline project. Gallagher also voted that day in support of a competing firm's pipeline proposal.

At the time of the Cabinet vote, Gallagher held 1,000 shares worth about $8,000 in the $11 billion company. He didn't announce his stock ownership before voting, though he included his trading in annual, public-disclosure forms.

Gallagher said it was an oversight that he never declared his stock holdings before voting on the pipeline.

"I didn't even connect the two," Gallagher said. ". . . I only had 1,000 shares at the time."

Gallagher, his lawyers and supporters say there was nothing illegal or unethical about Gallagher's AES investments.

The St. Petersburg Times first reported Jan. 31 about Gallagher's online trading and other investments. The paper reported that records showed Gallagher invested in insurance companies while he was the state's insurance commissioner, and in an airline that had a contract with the state.

The reports prompted an ethics complaint questioning Gallagher's ownership of companies with business before the state. Gallagher said he wants the Ethics Commission to determine whether his trading violated ethics laws.

Gallagher said he traded on an Ameritrade account, a discount brokerage. He said he sometimes used a computer in his Capitol office, and also traded from home and an Internet-enabled cell phone.

Gallagher said he invested in AES based solely on available public information, including articles in newspapers, trade journals and investor newsletters. He said he received no investment tips from anyone who represented the company, including anyone who might have spoken to him about the pipeline project associated with Florida Cabinet decisions.

As for what motivated his decisions to buy or sell AES stock, he said: "In some cases, it was just instinct. I either wanted to lower my exposure or buy something or lots of reasons, not anything other than what was publicly available."

Government lawyers typically have a high threshold to prove wrongdoing in matters such as trading that occurs near government announcements. They must show that information was shared in a breach of fiduciary duty and that the person who received the information either knew or should have known it was passed along inappropriately.

Gallagher said he never invested more than $200,000 through his online account and that the millions of dollars in trades that appear on his tax returns are a result of hundreds of reinvestments in a single year of that same capital.

For instance, tax records show that Gallagher sold 41,000 shares of AES stock in 2002, for a gain of $21,000. In 2003, he sold 239,000 shares for a loss of $76,000. And in 2004, he traded 10,000 shares for a gain of $4,500.

Gallagher reported to the U.S. Internal Revenue Service that his online trading in a number of companies, including AES, yielded an $18,000 profit in 2003 and a $57,000 loss in 2004. He was not required, and did not report, how much he profited or lost specifically on the AES trades.

"At this point, I'm looking back and I'd rather have not been in the stock market at all," Gallagher said.